Volkswagen says technology costs to limit profits in 2012

By IBT Staff Reporter On 03/12/12 AT 6:48 AM

Volkswagen AG's pursuit of record profits may take a breather this year as Europe's largest car maker invests in a technology overhaul.

VW has a goal of matching last year's record 11.3 billion euros ($14.8 billion) in operating profit in 2012 before aiming for another increase in 2013, the company said in its annual report published on Monday. Revenue may beat last year's 159.3 billion euros in 2012 and 2013.

We need to recoup our substantial development and start-up costs, Chief Executive Martin Winterkorn said at a press conference in VW's hometown Wolfsburg. Efforts which started in 2012 to expand parts-sharing across VW's range of small and mid-sized vehicles may yield substantial savings over the longer term, he said.

VW estimates its parts sharing across brands including luxury division Audi and Czech unit Skoda may cut production costs by 20 percent and assembly times by 30 percent - part of its ambition of becoming the world's biggest auto manufacturer no later than 2018.

Continued growth of car markets in Asia, the United States, Latin America and Russia may help VW to increase group deliveries this year beyond the record 8.3 million cars achieved in 2011. The company plans to roll out more than 40 new models or updated vehicles in 2012, according to Winterkorn.

VW said last month fourth-quarter operating profit slipped nearly 1 percent to 2.29 billion euros. The company plans to increase its dividend by 80 cents to 3 euros per share for common shareholders and 3.06 euros for preferred.

MORE FLEXIBLE

The unbroken automotive boom is providing an additional tailwind for our growth plans, Winterkorn said on Monday, adding that the global market for passenger cars and light commercial vehicles could exceed 100 million units by 2018.

VW's new compact car production system is more flexible than previous platforms and allows the car maker to build models with different height, width and length. The new architecture is designed for use in as many as 3.5 million small and mid-sized cars including Audi's new A3 compact and the next generation of VW's Golf, the carmaker's best-selling vehicle.

VW said last September that 62.4 billion euros will be spent on factories, vehicles and development as part of its rolling five-year budget. The auto manufacturer hasn't disclosed costs for launching its new compact-car technology, though it admits an impact on earnings.

It initially entails considerable upfront costs in order to adapt a range of production plants to the new platform, Chief Financial Officer Hans Dieter Poetsch said at the press conference.

VW is still facing hurdles to combining with Porsche SE's automotive operations, Winterkorn said. VW faces having to pay about 1 billion euros in tax if it were to buy the remaining 50.1 percent of Porsche's car-making business before 2014.

The German manufacturer dropped plans for a full merger with Porsche last September after lawsuits against the sports-car manufacturer in the United States and Germany complicated Porsche's valuation.

All parties involved are continuing to work at full speed on achieving the integrated automotive group with Porsche at conditions that make good economic sense, the CEO said.

VW shares were down 1 percent at 141.45 euros by 1014 GMT, against a 0.4 percent rise in the German DAX index.